Is There News in Inventories?

56 Pages Posted: 14 May 2020

See all articles by Christoph Görtz

Christoph Görtz

University of Birmingham - Department of Economics

Christopher Gunn

Carleton University - Department of Economics

Thomas Lubik

Federal Reserve Banks - Federal Reserve Bank of Richmond

Date Written: 2020

Abstract

We identify total factor productivity (TFP) news shocks using standard VAR methodology and document a new stylized fact: in response to news about future increases in TFP, inventories rise and comove positively with other major macroeconomic aggregates. We show that the standard theoretical model used to capture the effects of news shocks cannot replicate this fact when extended to include inventories. To explain the empirical inventory behavior, we therefore develop a framework that relies on the presence of knowledge capital accumulated through a learning-by-doing process. The desire to take advantage of higher future TFP through knowledge capital drives output and hours choices on the arrival of news and leads to inventory accumulation alongside the other macroeconomic variables. The broad-based comovement we document supports the view that news shocks are an important driver of aggregate fluctuations.

Keywords: news shocks, business cycles, inventories, knowledge capital, VAR

JEL Classification: E200, E300

Suggested Citation

Görtz, Christoph and Gunn, Christopher and Lubik, Thomas, Is There News in Inventories? (2020). CESifo Working Paper No. 8284, Available at SSRN: https://ssrn.com/abstract=3598770

Christoph Görtz (Contact Author)

University of Birmingham - Department of Economics ( email )

United Kingdom

Christopher Gunn

Carleton University - Department of Economics ( email )

1125 Colonel By Drive
Ottawa, Ontario K1S 5B6
Canada

Thomas Lubik

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

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